Forex recommendations from Hantec FX's market analyst, who gives us his expert analysis and tips on the EUR/USD, AUD/USD and USD/JPY – as well as his opinion on gold
EUR/USD: As quickly as ‘Grexit’ was coined, a new portmanteau word had taken its place and the markets attention this week. ‘Spanic’, or Spanish panic, became the focus for investors as fears surrounding the possibility of a bail out for the country weighed heavily on the euro.
There was no mitigation of the prolonged pessimism shrouding the EZ with Bankia at the forefront of market concerns. Contrived headlines kept investors on a knife-edge, epitomised by a rumour, seemingly originating from Twitter, suggesting the ECB would make an announcement over bank recapitalisation.
This proved to be completely fabricated. Markets continued to sell at will, shunting the euro easily through options barrier at US$1.2500. In a desperate bid to marry the move up with some news, markets attributed it to a Spanish credit rating downgrade by Egan-Jones, whose previous 3 downgrades since late April went entirely unnoticed.
The power struggle in Greece did tempt some movement as an abundance of polls documented the various swings in political dominance. Any hint at a New Democracy lead caused some relief to the euro, but rallies remained futile.
Having crashed to US$1.2360 mid-week, the euro clamoured back above US$1.2400 on yet another rumour, this time regarding an IMF contingency plan for Spain. The IMF’s Lagarde promptly invalidated the news and slew of weak US data saw the pair plunge to US$1.2336.
Non-farm Friday provided some lasting relief for the euro after month-end flows maintained the one-way dollar demand. With the NFP figure coming in well below expectations at 69,000 and US unemployment creeping higher to 8.2%, investors piled back into the euro resulting in an erratic scramble higher to US$1.2459.
It is likely the euro will continue to weaken against the dollar as the EZ banking crisis rumbles on unresolved and the global growth outlook continues to deteriorate. However, any positive news will likely cause overreaction in markets.
The commodity currency’s dour performance of late perdured unrestrained as it continued to be driven by intense euro weakness. Speculation over a stimulus package to be unleashed by the Chinese government sparked an early push back to US$0.9889 as markets discussed the potential resultant benefits to Australia.
The pressure of growing unrest in Spain proved too much for the riskier currency as it succumbed to broad selling throughout the week, with any rallies providing a good shorting opportunity. Soft retail sales coming in at -0.2% against 0.2% forecast added to the Aussie’s woes.
Month-end flows buoyed the pair as the dollar continued to dominate, but weaker-than-expected China PMI, posting 50.4, at the tail end of the week resulted in the pair tumbling lower to US$0.9649. The immediate reaction to NFP data saw the Aussie dollar collapse to a 7-month low of US$0.9581, before it completely retraced the day’s shift lower to end the week near US$0.9685.
It is likely the Aussie dollar will continue to weaken against the US dollar as Spanish and Greek fears, coupled with waning Chinese resilience weigh on the pair.
This pair offered very little at the start of the week. It showed glimpses of its former self as it held in a tight 30-pip band into mid-week. Eventually the broad risk aversion in markets led the yen higher as it continued its recent path. The steep fall in US Treasury yields helped drag the pair lower as it resided near ¥78.22 on Thursday.
Finance Minister Azumi was quick on the wires with some aggressive jawboning, warning against the speculation-driven value of the yen. It was clear that Japan was coming to the end of its tether as the language turned to that of imminent ‘decisive action’.
After the pair crashed through a barrier at ¥78.50, intervention rumour was rife. NFP data that resulted in further flight to the yen resulted in it soaring to ¥77.67. News hit markets that Japan had indeed intervened and the pair was slingshot back to ¥78.72. The BoJ had been busy, but only obliged in conducting a yen rate check. The yen quickly came back off its highs, resting marginally above ¥78.00.
It is likely the yen will continue to strengthen against the dollar, however with intervention a real near-term possibility, investors will tread carefully as any sign of yen momentum will likely trigger action.
In stark contrast to last week, the precious metal abruptly reverted to its inherent safe haven status as conditions within the EZ worsened this week. At the beginning of the week it seemed like business as usual with headlines from Europe dousing any attempted reprieve in the metal. Investors saw a torrent of stop-loss orders at $1,570 exacerbate concerns over Spain’s debt situation which drove the metal to sub-$1,550. This continued into mid-week as demand for the dollar heaped pressure on gold.
After a swift test of important support at $1,530 failed to conjure up a further move lower, the metal produced a sharp turnaround, rebounding $30 as renewed safe-haven demand, accelerated by technical buying, sent gold higher. This support continued in light of the metal posting a dire 6% loss during May, holding as the sell-off in riskier assets continued.
Friday provided the real action as a substantially weaker-than-expected NFP figure acted as the springboard to a 4% rally. The metal completely disengaged with its link to riskier assets as oil and equities slumped and it rocketed up over $80 from intra-day lows ending the week higher at $1,625 an ounce.
It is likely gold will consolidate in the near-term, but will remain under pressure from broader dollar demand and find support from any signs of a weakening US recovery.
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